Colombia’s central bank kept interest
rates unchanged today in a bid to head off a resurgence of
inflation running near the fastest pace since 2001.
The bank’s seven-member board, led by chief Jose Dario
Uribe, held the interbank rate at a seven-year high of 10
percent, meeting the forecasts of 33 of 36 economists surveyed by
Bloomberg. Three economists predicted a quarter-point cut.
“The bank is focused on reining in inflation before it can
relax interest rates,” Alvaro Camaro, an analyst at Stanford
Financial Group’s unit in Bogota.
The central bank has paused since a quarter-point increase
in July as policy makers sought to assess the effect of 16 rate
increases in a little more than two years. Surging consumer
demand in Colombia helped drive the $172 billion economy to its
fastest expansion in decades last year.
Policy makers have increased borrowing costs by 4 percentage
points since April 2006 to rein in inflation that’s held above
the bank’s 3.5-to-4.5 percent target range for more than a year.
Consumer prices in the 12 months through September rose 7.57
percent, nearly twice the bank’s target pace, down from the
seven-year high of 7.87 percent reached in August.
At the same time, the highest overnight lending rate since
2001 has succeeded in cooling the expansion of the economy.
Bank chief Uribe this month reduced his estimate for
economic growth in 2009 to 4 percent from a previous projection
of 5 percent. Colombia’s economy expanded 3.7 percent in the
second quarter, its slowest pace since 2005.
Gross domestic product grew 3.7 percent in the second
quarter, the slowest pace since 2005 and down from 8 percent in
the same period a year ago.
Output fell 8.8 percent in August from the year-earlier
period, compared with the median estimate of a 0.5 percent
increase in a Bloomberg survey.
Retail sales fell 0.7 percent in August, the government
said this week, beating all forecasts in a Bloomberg survey of 9
economists whose median estimate was a 3.4 percent increase.
Alberto Bernal, emerging markets strategist for Bulltick
Capital Markets, said the macro-economic conditions are in place
for a 200 basis point reduction in interest rates next year.
“We’re going into such a deflationary environment it’s not
even funny,” he said in a telephone interview from Miami.
If Colombia had cut rates, it would’ve been the first Latin
American country to do so this year. It also would’ve satisfied
President Alvaro Uribe and major businesses who have complained
restrictively high borrowing costs are putting jobs at risk.
“I hope the Holy Spirit enlightens the members of the Banco
Republica,” Uribe said yesterday in Bogota while inaugurating
Chilean retailer Cencosud SA’s first store in Colombia. (Bloomberg)
